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Comparing Apples with....Apples : how to make (more) sense of subjective rankings of constraints to business

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  • Hallward-Driemeier, Mary
  • Aterido, Reyes

Abstract

The use of expert or qualitative surveys to rank countries’ business investment conditions is widespread. However, within the economic literature there are concerns about measurement error and endogeneity based on characteristics of the respondents, raising questions about how well the data reflect the underlying reality they are trying to measure. This paper examines these concerns using data from 79,000 firms in 105 countries. The findings show that first, qualitative rankings correlate well with quantitative measures of the business environment, using both quantitative measures from within the survey and from external sources. Second, there are systematic variations in perceptions based on firm characteristics - focusing in particular on size and growth performance. However, it is not that an optimistic view of the business environment is simply the expression of a firm’s own performance. Rather, firm size and performance affect the relative importance of certain constraints, particularly in areas such as finance, time with officials/inspectors, corruption, and access to reliable electricity. The results also show that much of the variation in subjective responses by firm types is largely due to differences in the objective conditions across firm types. There is little evidence that size and performance have non-linear effects in how constraining a given objective condition is reported to be. Overall, concerns about endogeneity remain in using business environment indicators to explain firm performance, but this stems primarily from the fact that who you are and how well you are doing can affect the conditions you face rather than whether the indicator used is qualitative or quantitative.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5054.

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Date of creation: 01 Sep 2009
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Handle: RePEc:wbk:wbrwps:5054

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Keywords: Microfinance; E-Business; Transport Economics Policy&Planning; Debt Markets; Access to Finance;

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  9. Claudia Senik, 2005. "Income distribution and well-being: what can we learn from subjective data?," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 19(1), pages 43-63, 02.
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Cited by:
  1. Hallward-Driemeier, Mary & Pritchett, Lant, 2011. "How business is done and the'doing business'indicators : the investment climate when firms have climate control," Policy Research Working Paper Series 5563, The World Bank.
  2. World Bank, 2010. "Bhutan Investment Climate Assessment Report : Vitalizing the Private Sector, Creating Jobs, Volume 2," World Bank Other Operational Studies 12872, The World Bank.
  3. Carlin, Wendy & Schaffer, Mark & Seabright, Paul, 2013. "Soviet power plus electrification: What is the long-run legacy of communism?," Explorations in Economic History, Elsevier, Elsevier, vol. 50(1), pages 116-147.
  4. Carmen Pagés-Serra & Reyes Aterido & Mary Hallward-Driemeier, 2007. "Investment Climate and Employment Growth: The Impact of Access to Finance, Corruption and Regulations Across Firms," Research Department Publications, Inter-American Development Bank, Research Department 4559, Inter-American Development Bank, Research Department.
  5. Silvio Contessi & Francesca de Nicola & Li Li, 2012. "International trade, female labor, and entrepreneurship in MENA countries," Working Papers, Federal Reserve Bank of St. Louis 2012-053, Federal Reserve Bank of St. Louis.
  6. Clarke, George, 2010. "Are Managers’ Perceptions of Constraints to Growth Reliable? Evidence from a Natural Experiment in South Africa," MPRA Paper 20098, University Library of Munich, Germany.
  7. Reyes Aterido & Mary Hallward-Driemeier & Carmen Pag�s, 2011. "Big Constraints to Small Firms’ Growth? Business Environment and Employment Growth across Firms," Economic Development and Cultural Change, University of Chicago Press, vol. 59(3), pages 609 - 647.
  8. Ayyagari, Meghana & Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2010. "Are innovating firms victims or perpetrators ? tax evasion, bribe payments, and the role of external finance in developing countries," Policy Research Working Paper Series 5389, The World Bank.
  9. Misch, Florian & Gemmell, Norman & Kneller, Richard, 2014. "Using Surveys of Business Perceptions as a Guide to Growth-Enhancing Fiscal Reforms," Working Paper Series 3140, Victoria University of Wellington, Chair in Public Finance.
  10. Carmen Pagés-Serra & Reyes Aterido & Mary Hallward-Driemeier, 2007. "Clima de negocios y creación de empleo: El efecto del acceso al crédito, la corrupción y el marco regulatorio en el crecimiento de las empresas," Research Department Publications, Inter-American Development Bank, Research Department 4560, Inter-American Development Bank, Research Department.
  11. World Bank, 2010. "Bhutan Investment Climate Assessment Report : Vitalizing the Private Sector, Creating Jobs, Volume 1. Summary Report," World Bank Other Operational Studies 12871, The World Bank.
  12. Carlin, Wendy & Schaffer, Mark E & Seabright, Paul, 2010. "A Framework for Cross-Country Comparisons of Public Infrastructure Constraints on Firm Growth," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7662, C.E.P.R. Discussion Papers.

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